How We Sold an $11,800,000 FBA Business in 137 Days
Updated on June 1, 2022
Our first eight-figure business sale. Finishing 2020 with a big success for us as a broker.
It’s quite an occasion for us here at Empire Flippers, considering we started out a little over ten years ago flipping four-figure AdSense sites while sharing our experiences on a blog.
This isn’t just an indication of how much we’ve grown as a brokerage; it also shows how much the online business M&A industry has grown as a whole.
With this massive, rapid growth, us brokers have had to evolve.
While the sale of our first eight-figure business required the full expertise of our team and tested our capabilities, getting through those growing pains allowed us to list a second 8-figure business in the same year. At the time of writing, it is being transferred to its new owner.
The same happened when we grew from five-figure sales to six-figure sales and from six figures to seven figures. Once we got our first listing, more listings of the same size started to come into our marketplace.
I’d like to share the story of the sale of this eight-figure business: the intricacies of the valuation process, the business’ time on our marketplace, and the structure of the final deal. At the end of this article, I will also tell you about the market boom we’re currently experiencing with some juicy data thrown in.
Getting the Business Listed for Sale
The first step in getting a business listed for sale, after the areas of the business such as operations and data analytics have been prepared by the seller, is getting the most accurate valuation possible.
For an eight-figure company, there are a lot of moving parts. As a result, getting an accurate and fair valuation is typically a resource-intensive process.
Agreeing On the Listing Price
We know that prospective buyers at this price point are going to be stringent in their due diligence and will be easily turned off if there is anything out of sorts.
That’s why we combed through all of the finances of the business to make sure we created a pitch-perfect profit and loss statement (P&L). However, it didn’t come together right away. There were some hurdles we had to clear to bring together the right P&L for this eight-figure seller.
Refunded Products Caused a Headache
First, there were some discrepancies between the P&L provided by the seller and what our vetting team produced.
After some digging, we concluded that these inconsistencies derived from the calculations regarding refunded products.
When we collected the financial figures from this business, we referred to its fulfillment reports on Amazon. In the seller’s P&L, for one of the SKUs, they had recorded 458 refunds, whereas Amazon was showing us that only 29 of those refunded products were deemed “sellable.” Therefore, we believed that only those 29 refunds could be deducted from the cost of goods sold (COGS). Deducting all refunds from the COGS usually leads to the business being overvalued.
We knew that our buyers would look into this, so we wanted to make sure we were as accurate as possible with the reports.
After asking for further clarification from the seller, they told us the following:
“We are paying Amazon and our external warehouse every week to remove all unfulfillable units and inspect them. Most of them we repackage and send back to Amazon. The defective ones we are sending back to China and getting credited for. In fact, as I am typing, we now have a 40HQ container moving on seas from the USA to China, full of returned defect products which the factory is going to repair for us.”
The seller was returning defective products to the supplier for repair and resale, and they were repackaging some items and sending them back to Amazon for inspection and resale.
This was why they were recording a higher number of refunds than we were.
The seller had only a small percentage of the cheaper units that couldn’t be reused. To account for the returned products in their annual P&Ls, they reconciled the COGS at the end of each year and adjusted the cost per SKU accordingly. This meant that the total cost of shipping and inventory equaled the total COGS.
After getting this information from the seller, we used a similar methodology to calculate the COGS, whereby we calculated the “Orders,” deducted the “Refunds,” and added the “Adjustments” to the units sold.
This made sense since the seller was removing the refunded units and they were entered back into the inventory from the 3PL or the seller was being reimbursed by the supplier. Those classified as “Adjustments” were reimbursed by Amazon and didn’t go back into the inventory.
That was the biggest sticking point in preparing the P&L, but there were also some discrepancies in the currency exchange.
Currency Conversion Caused Confusion
The financial figures were being run through two separate entities in two different currencies. This meant the fluctuation of the exchange rates, i.e. the value of the currency the sales were recorded in and then converted to USD, had a slight impact on the P&L.
The sale happened during the pandemic and while a major governmental change was occurring in the UK which affected the GBP. This meant that the exchange rate at the time wasn’t an accurate reflection of the currency exchange differences the business typically incurred.
We used a 12-month average calculation to mitigate the effect of the currency fluctuation, which helped provide the seller with a more fair valuation.
Once we got clear on the financials of the business and created an airtight P&L, we were ready to list the business for sale
On the Marketplace
When we listed the business, it was on the more fortunate side of the global pandemic.
Because the business started earning considerably more, the listing price was raised by over $1,000,000.
As expected, the listing got plenty of attention on our marketplace, as you can see from the weekly number of listing views:
Week 1 = 2024
Week 2 = 1668
Week 3 = 1286
Week 4 = 1613
Week 5 = 1601
Week 6 = 1698
The listing was also Unlocked by 20 different buyers. An ‘Unlock’ is where a buyer with enough verified funds to acquire the business requests to see more details.
At the time of writing, we have over $3.3BN in funds verified on our marketplace—capital that is ready to be invested into online businesses.
At the price range this business was in, buyers typically tend to be private equity groups who have bought multiple businesses from us. They usually want to carry out exclusive due diligence for 30–45 days before making the investment.
Exclusive due diligence is an arrangement in which a buyer puts down an offer on a business and secures a period of usually 30 days to do in-depth due diligence on the business. The buyer will formalize initiation of the due diligence with a letter of intent, which acts as a promise to buy the business. Only in the case of a rare circumstance where something about the business wasn’t advertised accurately (i.e. the financial figures vary greatly to what was declared in the initial P&L) will the buyer revoke their intention to buy the business, but in most cases they will initiate the payment process once the due diligence is complete.
Exclusive due diligence is more common in large FBA deals as they are a larger investment compared to smaller assets and they allow the investor to move quickly to secure the business.
In the sub-$750K range, we tend to see attention from high net worth individuals (HNWI) or multiple new buyers pooling together capital.
After receiving offers and taking calls from interested buyers, the seller was given an offer of $11,800,000 that grabbed their attention.
Closing the Deal
The deal offered was an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) earnout. The seller received an upfront payment, with the rest of the funds being paid as a performance-based earnout after the business was transferred over to the buyer.
If you’d like to learn more about the types of deals you can expect when selling your business, give us a call and one of our expert Business Analysts will be able to give you a personalized answer.
To understand the power of this deal and why we were able to close this deal successfully, we should discuss the current state of the market.
The demand for online businesses has never been greater. We have buyer contacts who request that we inform them when offers are made on our listings so that they can see whether they would like to beat the offer to acquire the business.
We work with major acquirers who come to us because they trust in the quality of the businesses we list for sale and our thorough processes. So, our marketplace is an ideal place to come if you want to take advantage of the market boom.
The Current State of the FBA Market
Brand aggregators backed by private equity firms and family offices, as well as HNWIs, have been swallowing up the market over the past year.
At the start of 2020, they withheld their funds because of the uncertainty of the market.
Once they saw the online business industry soar, though, they started to open their wallets. In fact, they poured their money on the table.
As a result, right now, for the first time in history, we’re in a seller’s market.
The value of Amazon FBA business has increased higher and faster than ever before.
At the start of 2020, a typical Amazon FBA business would have gotten a baseline multiple of 25X. That’s 25 times the monthly net profit of the business.
By the end of 2020, the same Amazon FBA business earning the same net profits would have gotten a baseline multiple of 28.5X.
So, an FBA business worth $625,000 at the start of 2020 would have been worth $712,500 by the end of the year even if the business didn’t change!
At the beginning of every year, we release our State of the Industry Report, which is a breakdown of our marketplace data for the previous year. It’s over 10,000 words, packed full of data that shows the current state of the industry.
2020 was a massive growth year for Amazon FBA, as you can see from these figures we recorded:
- In 2020 alone, we tracked $1,621,960,093.63 in verified funds on our marketplace (at the time of writing, this figure has now risen to over $3.3BN!).
- We grew our transactions by 10% compared to 2019 but increased our total sales amount by 66%.
- We sold 24% more FBA businesses in 2020 than in 2019, and 41% more than in 2018.
- Our total Amazon FBA sales increased by 98% as compared to 2019 and by a massive 254% as compared to 2018.
- An 11% increase in the average sales multiple was noted compared to 2019 and a 23% increase compared to 2018.
- There was a 15% increase in the list multiple.
- The average number of days on the market for an FBA business was 67 days. This is a 21% decrease from 2019.
We’ve never seen numbers like this before in our ten years as a business broker. We’re not sure what’s in store for the end of 2021 and beyond, but right now, the market is in a great place.
There’s never been a better time to sell an Amazon FBA business. If you think it’s the right time in your life—perhaps you have some goals you’d like to dedicate time and capital to—then list your FBA business for sale today.
If you’re not quite at that point yet but are curious as to how valuable your FBA business is in this hot market, then you can find out in just a couple of minutes by using our free valuation tool. It’s built on algorithms that, unlike other valuation tools, are backed by real sales data to give you the most accurate valuation.
